Over the past twenty-five years, the Board of Directors of an electric utility company with operations in Georgia, Alabama, Florida, and Mississippi called “Southern Company” have grown the dividend payments to shareholders by a compounded annual growth rate of 4.89%. This has been a fairly static figure. The ten-year dividend growth at Southern is 4%, the fifteen-year dividend growth is 4.3%, and the twenty-year dividend growth is 4.7%. The earnings usually grow about a percentage point higher, with the twenty-five year dividend growth at Southern being just shy of 6%.
Like most utilities, the firm is leveraged to the gills with $27 billion in debt and $10.4 billion of the debt due within five years. Southern makes $2.6 billion per year in profits, and is expected to make a total of $13 billion in profits over the next five years.
This is a pretty standard experience of being a utility … Read the rest of this article!
“I am a better investor because I am a businessman, and I am a better businessman because I am an investor.” In addition to the charming chiasmus of this sentence, I greatly enjoy this Warren Buffett quote for the substance of the statement as well. It is a useful sentence to keep in mind when evaluating the investment merits of a stock that has fallen in price rapidly, especially after the investor community receives notice of an adverse development or when the earnings report is disappointing when compared against existing expectations. How do you tell the difference between one of those Mr. Market mispricings and a classic value trap?
I recently covered eBay as it witnessed one of the worst trading days in the corporation’s history, with the stock falling 12% down to $23. I found the drop attractive because the stock is making $2.10 per share and will likely … Read the rest of this article!
This year, eBay is going to make somewhere near $2.10 per share in profit, which amounts to somewhere near the $2.5 billion mark. This takes earnings back to the 2011 level due to the Paypal spinoff last July, though eBay has replaced the fast-growing Payal in its collection of subsidiaries with StubHub. The ticket exchange subsidiary, which reported revenue growth of 34%, currently represents $232 million of eBay’s overall $8.6 billion in annual revenues.
Because the corporate expenditures involve maintaining the integrity of the website, the company is able to report absolutely stunning 27% net profits of all expenditures. That $2.5 billion profit figure compared to $8.6 billion in revenues is a very impressive relationship that bodes well for shareholders because it suggests a large amount of current earnings can be extracted from the business for dividends or share repurchases without harming the competitive competition of the firm.
This is … Read the rest of this article!
Yesterday, the Missouri House Committee on Emerging Issues in Education began considering an initiative that would make high school personal finance classes a requirement for receiving a high school diploma in the state of Missouri. Currently, Missouri high school students are only required to take a half-credit of personal finance classes, and personal finance classes are defined so broadly that a class dedicated to social studies or anything that falls under the heading of “practical arts” meets the qualification. It is also possible to take a proficiency test that can provide an opt-out. Missouri does not disclose the results of its proficiency tests, but the national adult passage rate is 57%.
The current bill will modify Missouri’s existing law by removing the opt-out possibility and force students to take a class that focuses solely on personal finance related material (i.e. no more social studies and practical arts classes counting towards … Read the rest of this article!
One of the anachronistic components of the current United States tax law is the treatment of foreign profits generated by a firm that is domiciled in America. If Coca-Cola, based in Atlanta, generates profit selling Cherry Coke in Brazil, it faces the prospect of a 35% tax on profits when it tries to take those Brazilian Cherry Coke profits back to Atlanta to allocate the freshly available capital. This rule was a product of the Marshall Plan that helped rebuild Europe after the war, as the United States facilitated the ability of its corporations to become multinationals in exchange for a tax bite of those repatriated profits.
As the rest of the world caught up to the United States, and technology advances made it easier for corporations to communicate internationally, the bargaining power between U.S. corporations and its own government shifted. The tax on foreign earnings as part of a … Read the rest of this article!